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Lender - Please tear off this top sheet and give it to the applicant at application time _________________________________________________________________________________ More

House 4 Less Maryland Mortgage Program Recapture Tax Reimbursement Federal law provides for a possible Recapture Tax when some homeowners sell their home within the first nine years after receiving a mortgage through the Community Development Administrations (CDA) Maryland Mortgage Program. In order to remove the confusion and worry about having to pay a recapture tax when the home is sold -- CDA agrees to reimburse any CDA homebuyer, who settles on their home on or after July 1, 2005, the amount of any recapture tax that the CDA homebuyer pays in connection with the sale of the home. CDA will not calculate the recapture amount. Upon sale or disposition of the residence, the borrower(s) must consult a personal tax adviser or the IRS. In order to request a recapture tax reimbursement from CDA: The borrower(s) first must instruct the IRS, by using IRS Form 4506, to send to CDA a copy of each borrowers federal tax return covering the calendar year in which the residence was sold. On Form 4506, instruct the IRS to send the information to: Maryland DHCD Attention: CDA Single Family - Recapture Tax Reimbursement 100 Community Place, 4th Floor Crownsville, Maryland 21032 410-514-7530

The borrower(s) must send a written request for reimbursement to CDA, by July 15th of the calendar year after the residence is sold, accompanied by the following: a copy of the signed HUD-1 Settlement Statement from the sale or disposition of the property; the address to which the reimbursement should be mailed; and, any other documentation CDA may need to approve the reimbursement Submit requests for reimbursement to: Maryland DHCD Attn: CDA Single Family - Recapture Tax Reimbursement 100 Community Place, 4th Floor Crownsville, Maryland 21032

CDA will not act on the request for reimbursement until the copies of the borrower(s) tax returns are received from the IRS.

CDA will only reimburse the Recapture Amount actually paid, but will not reimburse fees, interest, expenses or penalties incurred. Be advised that CDA will issue an IRS Form 1099 so the amount of any recapture tax that CDA reimburses to the borrower will be reported to the IRS as income. _____________________________________________________________________________________ NOTICE TO BORROWER WITH INFORMATION FOR CALCULATING POTENTIAL RECAPTURE TAX begins on the next page.

NOTICE TO BORROWER WITH INFORMATION FOR CALCULATING POTENTIAL RECAPTURE TAX

Because you are receiving a mortgage loan from the proceeds of a tax-exempt bond, you are receiving the benefit of a lower interest rate than is customarily charged on other mortgage loans. If you sell or otherwise dispose of your home during the next nine years, this benefit may be recaptured. The recapture is accomplished by an increase in your federal income tax for the year in which you sell your home. The recapture only applies, however, if you sell your home at a gain and if your income increases above specified levels. The recapture tax payment must be accompanied by a signed Internal Revenue Service Form 8828 (Recapture of Federal Mortgage Subsidy) which is to be attached to your Form 1040 for the year in which you sell your home. See the Form 1040 and Form 8828 Instructions. You may wish to consult a tax advisor or the local office of the Internal Revenue Service at the time you sell your home to determine the amount, if any, of the recapture tax. Along with this notice, you are being given additional information that will be needed to calculate the recapture tax. I. METHOD TO COMPUTE RECAPTURE TAX ON SALE OF HOME A. Introduction. 1. General. When you sell your home you may have to pay a recapture tax as calculated below. The recapture tax may also apply if you dispose of your home in some other way. Any references in this notice to the sale of your home also includes other ways of disposing of your home. For instance, you may owe the recapture tax if you give your home to a relative. 2. Exceptions. In the following situations, no recapture tax is due and you do not need to do the calculations: a. loan; b. Your home is disposed of as a result of your death; c. You transfer your home either to your spouse or to your former spouse incident to divorce and you have no gain or loss included in your income under section 1041 of the Internal Revenue Code; or d. You dispose of your home at a loss. B. Maximum Recapture Tax. The maximum recapture tax that you may be required to pay as an addition to your federal income tax is an amount equal to 6.25% of (.0625 multiplied by) the highest principal amount of your mortgage loan, generally the amount of the mortgage loan on the date of settlement. This is your federally subsidized amount with respect to the loan. You dispose of your home later than nine years after you close your mortgage

C. Actual Recapture Tax. The actual recapture tax, if any, can only be determined when you sell your home, and is the lesser of: (1) 50% of your gain on the sale of your home, regardless of whether you have to include that gain in your income for federal income tax purposes; or (2) your recapture amount determined by multiplying the following three numbers.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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1. The maximum recapture tax, as described in paragraph B above; 2. The holding period percentage, as listed in Column 1 in the Table found in Section II of this document; and 3. The income percentage, as described in paragraph D below. D. Income Percentage. First locate the Table that applies to your loan and then calculate the income percentage as follows: 1. Subtract the adjusted qualifying income applicable in the taxable year in which you sell your home, as listed in Column 2 in the Table identified above, from your modified adjusted gross income in the taxable year in which you sell your home. Your modified adjusted gross income means your adjusted gross income shown on your federal income tax return for the taxable year in which you sell your home, with the following adjustments: (a) your adjusted gross income must be increased by the amount of any interest that you receive or accrue in the taxable year from tax-exempt bonds that is excluded from your gross income (under section 103 of the Internal Revenue Code); and (b) your adjusted gross income must be decreased by the amount of any gain included in your gross income by reason of the sale of your home. 2. If the amount calculated in (i) above, is zero or less, you owe no recapture tax and do not need to make any more calculations. If it is $5,000 or more, your income percentage is 100%. If it is greater than zero but less than $5,000, it must be divided by $5,000. This fraction, expressed as a percentage, represents your income percentage. For example, if the fraction is $1,000/$5,000, your income percentage is 20%.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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II.

TABLES OF ADJUSTED QUALIFYING INCOME TABLE 1 Targeted Jurisdictions Excluding Washington, D.C. MSA (Using State Median Income)

Allegany County; Anne Arundel County, Census Tract 740105; Baltimore City; Baltimore County, East Towson, Oella, West Catonsville, and Census Tracts 401602, 421300, 450504, 450800, 490605 and 491401; Caroline County; Dorchester County; Garrett County; Harford County, Census Tract 302901; Kent County; Somerset County; Washington County, the City of Hagerstown and any portions of census tracts 000302, 000400, 000700, and 000900 outside of the City of Hagerstown; Wicomico County, Census Tracts 000100, 000300, 000500 and 010200; Worcester County, Census Tract 990300. (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living In Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing *State median income of 85,500 times 120% and 140%. 20% 40% 60% 80% 100% 80% 60% 40% 20% 102,600* 107,730 113,117 118,772 124,711 130,946 137,494 144,369 151,587 3 or More 119,700* 125,685 131,969 138,568 145,496 152,771 160,409 168,430 176,851

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 2 Non-Targeted Jurisdictions Excluding Baltimore-Towson MSA and Washington, D.C. PMSA (Using State Median Income) Washington County (excluding the City of Hagerstown and any portions of census tracts 000302, 000400, 000700, and 000900 outside of the City of Hagerstown); Wicomico County (excluding Census Tracts 000100, 000300, 000500 and 010200); Worcester County (excluding Census Tract 990300). (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing *State median income of 85,500 times 100% and 115%. 20% 40% 60% 80% 100% 80% 60% 40% 20% 85,500* 89,775 94,264 98,977 103,926 109,122 114,578 120,307 126,322 3 or More 98,325* 103,241 108,403 113,823 119,515 125,490 131,765 138,353 145,271

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 3 Non-Targeted Jurisdictions Excluding Baltimore-Towson MSA and Washington, D.C. PMSA (Using County AMI) St. Marys County (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 85,600* 89,880 94,374 99,093 104,047 109,250 114,712 120,448 126,470 3 or More 98,440* 103,362 108,530 113,957 119,654 125,637 131,919 138,515 145,441

* HUDs Rounded FY 2009 MFI Estimate for St. Marys County, MD of 85,600 times 100% and 115%.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 4 Targeted Jurisdictions in Washington, DC MSA (Using County AMI) In Frederick County, Census Tracts 750100 and 750300; Prince Georges County, Brentwood, Capitol Heights, Colmar Manor, Fairmont Heights, Mount Rainier, North Brentwood, Seat Pleasant, and Census Tracts 803200, 803401, 803509, 804300, 804800, 805601 and 805602. (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 123,240* 129,402 135,872 142,666 149,799 157,289 165,153 173,411 182,082 3 or More 143,780* 150,969 158,517 166,443 174,765 183,504 192,679 202,313 212,429

* Washington MSA median income of 102,700 times 120% and 140%.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 5 Non-Targeted Jurisdictions in Washington, D.C. MSA (Using High Housing Cost Area Adjustment) Calvert County; Charles County; Frederick County (excluding Census Tracts 750100 and 750300); Montgomery County; Prince Georges County (excluding Brentwood; Capitol Heights; Colmar Manor; Fairmont Heights; Mount Rainier; North Brentwood; Seat Pleasant; and Census Tracts 803200, 803401, 803509, 804300, 804800, 805601, and 805602). (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 123,240* 129,402 135,872 142,666 149,799 157,289 165,153 173,411 182,082 3 or More 141,726* 148,812 156,253 164,066 172,269 180,882 189,926 199,423 209,394

* Includes high housing cost area adjustment of 123,240 times 100% and 115%.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 6 Non-Targeted Jurisdictions in Baltimore-Towson MSA (Using High Housing Cost Area Adjustment) Anne Arundel County (excluding Census Tract 740105); Baltimore County (excluding East Towson; Oella; West Catonsville; and Census Tracts 401602, 421300, 450504, 450800, 490605 and 491401); Carroll County; Harford County (excluding Census Tract 302901); Howard County; Queen Annes County. (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 98,520* 103,446 108,618 114,049 119,752 125,739 132,026 138,628 145,559 3 or More 113,298* 118,963 124,911 131,157 137,714 144,600 151,830 159,422 167,393

*Includes high housing cost area adjustment of 98,520 times 100% and 115%.

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TABLE 7 Non-Targeted Jurisdictions Excluding Baltimore-Towson MSA and Washington, D.C. PMSA (Using High Housing Cost Area Adjustment) Cecil County. (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 90,389* 94,908 99,654 104,637 109,868 115,362 121,130 127,186 133,546 3 or More 103,947* 109,145 114,602 120,332 126,349 132,666 139,299 146,264 153,578

*Includes high housing cost area adjustment of 90,389 times 100% and 115%.

Notice to Borrower - Recapture Tax R:Bonds/SF Bond Forms/Current (032009)

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TABLE 8 Non-Targeted Jurisdictions Excluding Baltimore-Towson MSA and Washington, D.C. PMSA (Using High Housing Cost Area Adjustment) Talbot County. (Column 2) (Column 1) Holding Period Date that you sell your home Percentage Adjusted Qualifying Income Number of Family Members Living in Your Home at the Time of Sale 2 or Less Before the first anniversary of closing On or after the first anniversary of closing, but before the second anniversary of closing On or after the second anniversary of closing but before the third anniversary of closing On or after the third anniversary of closing but before the fourth anniversary of closing On or after the fourth anniversary of closing but before the fifth anniversary of closing On or after the fifth anniversary of closing, but before the sixth anniversary of closing On or after the sixth anniversary of closing but before the seventh anniversary of closing On or after the seventh anniversary of closing but before the eighth anniversary of closing On or after the eighth anniversary of closing but before the ninth anniversary of closing 20% 40% 60% 80% 100% 80% 60% 40% 20% 87,960* 92,358 96,976 101,825 106,916 112,262 117,875 123,769 129,957 3 or More 101,154* 106,212 111,522 117,098 122,953 129,101 135,556 142,334 149,451

*Includes high housing cost area adjustment of 87,960 times 100% and 115%.

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III.

LIMITATIONS AND SPECIAL RULES ON RECAPTURE TAX

A. If you give away your home (other than to your spouse or ex-spouse incident to divorce), you must determine your actual recapture tax as if you had sold your home for its fair market value. B. If your home is destroyed by fire, storm, flood, or other casualty, there generally is no recapture tax if within two years you purchase additional property for use as your principal residence on the site of the home financed with your original subsidized mortgage loan. C. In general, except as provided in future regulations, if two or more persons own a home and are jointly liable for the subsidized mortgage loan, the actual recapture tax is determined separately for them based on their interests in the loan. D. If you repay your loan in full during the nine year recapture period and you sell your home during this period, your holding period percentage may be reduced under the special rule in Section 143(m)(4)(C)(ii) of the Internal Revenue Code. E. Other special rules may apply in particular circumstances. You may wish to consult with a tax advisor or the local office of the Internal Revenue Service when you sell or otherwise dispose of your home to determine the amount, if any, of your actual recapture tax. See Section 143(m) of the Internal Revenue Code generally. Received and acknowledged this ___ day of _______________, 20__.

____________________________________ Borrower

____________________________________ Borrower

DMEAST #9986493